Saturday, April 14, 2012

After Professor Lim proposed his shock therapy to push up wages of low income workers earning below $1500 and freeze the wages of those earning more that $15000, Minister Lim Swee Say & Lee Yi Shyan came out to make the standard argument against wage intervention:

"However, labour chief Lim Swee Say said that if productivity does not lead to a corresponding increase, competitiveness would be lost which may cause some businesses to close down or re-locate out of Singapore.

This in turn would lead to a higher unemployment rate and structural unemployment."

When you run an economy, you have to make sure that businesses don't become too dependent on cheap labor and income inequality does not become too big otherwise you can end up in a situation where there are no good easy risk-free solutions for the problems you face. Professor Lim's proposed approach is risky - that's why he calls it "shock therapy". The only reason for shock therapy is that things cannot be maintain at the current state - societies with this high level of inequality do far worse that societies that have more equality[Link] and the longer you have this level of inequality the deeper your problems become and the harder it is to break out of the vicious cycle[Is Higher Income Inequality Associated with Lower Intergenerational Mobility].The PAP govt took a long time to recognize the problem and do something about it. It was only in 2011 that they saw the trend of falling productivity & low wages and came up with programmes to improve productivity. Lim Swee Say suggests that instead of doing "shock therapy" we try to improve productivity first then wages will improve. Remember the earlier approach of "skills upgrading" to improve the wages of low income earners - after more than a decade skills upgrading we find the wages of these workers either stagnant or falling because they were retrained to fill one low paying job after another.

To illustrate the various approaches clearly, lets look at a simple example. In some parts of India, the wages is so low, they human beings to do what is normally done by machines in developed countries.

Hard to believe but this is a human powered ferris wheel that uses cheap labor. The obvious way to improve productivity is to buy a motor and reduce the number of workers. However, the business man that owns this ferris wheel is not going to do it because he has access to cheap labor - why spend money on a motor when it is cheaper to use humans to do the job. No amount of productivity campaigns and urging by the govt can overcome the business logic of keep cost down by using the cheapest means to keep the wheel turning. The business man is not going to invest in a motor just because Lim Swee Say tells him to do so. There are only 2 ways to get productivity up. The first way is for govt to subsidize the purchase of motors but that doesn't guarantee the boss will pay his workers better after productivity goes up but he will certainly sack the workers he doesn't need. The 2nd way is to make labor expensive by setting a minimum wage. Once the cost of labor goes up, the businessman has no choice but to invest in a motor because he cannot pay all his workers and still make a profit. The workers who are now better paid have more money for consumption and that generates demand which will create employment for workers that were laid off.

When wages are pushed up, there is a risk that the businessman will choose to simply shut down his Ferris wheel and close shop however as long as there is demand for Ferris wheel rides and money to be made, he is likely to stay open for business. Before Malaysia decided to implement minimum wage, Malaysia businesses claimed that 3 million jobs will be lost and lobbied against minimum wage. This is essentially the same argument put up by the PAP govt against minimum wage and Prof Lim's shock therapy. It will be interesting to watch what happens in Malaysia once minimum wage is implemented. Hong Kong implemented minimum wage and saw no significant impact on employment[Businesses still hiring despite new minimum wages].

One of the particularly bad schemes implemented by the PAP that will cause our current problems to be entrenched is Workfare. On the surface it looks like money given to lowly paid workers to keep their heads above water. However, it is actually a subsidy for businesses using cheap labor - business don't pay workers enough for basic living and the govt steps in to make up the difference. Workfare creates no incentive for businesses to improve productivity because it encourages businesses to use cheap labor by subsidizing their wage bill. Workfare traps workers in menial jobs and perpetuates the current state of affairs because the PAP uses this scheme to justify not doing more to break out of the low wage and low productivity cycle.

If we want to break out of this vicious cycle, there is no choice now but to take some risk using wage intervention approaches. One way to do it is set a minimum wage and raise it every year until it reaches living wage level at the same time restricting the access to cheap foreign labor. The rate at which we do it depends on how much time we believe we have to solve this problem of income inequality. Professor Lim recommends a "shock" approach (50% increase in wages low income earners in 3 years) to snap us out of this vicious cycle because he sees Singapore nearly reaching a dangerous situation unless we do something. The PAP on the other hand has gone on a completely separate direction - they seem to think that they have all the time in the world to get this fixed favoring approaches that are so gradual they hardly moves us away from the status quo.

70 comments:

Anonymous
said...

Heron of Alexandria invented the aeolipile (a steam engine) in 1st century AD, at least a millennium earlier than any similar invention. However, there is no wide usage of the device. Why? Because labour is too cheap and too readily available.

The same logic applies to Singapore's labour market. Companies won't be thinking of increasing productivity if cheap labour is readily available. The "shock therapy" or minimum wage will provide a spur in the employers' hide to make them more productive.

the govt sees any thing, any thing at all, which contradicts or is contrary to what it is doing or what it claims, as completely false and a threat to it and its rule. it dismisses everything. i dont think it spends 1 second thinking about suggestions made that are contrary to the path it has chosen. only on arguments against these.

it is why housing has remained unaffordable for so long, and is still unaffordable now, and why we are in the sitn we are in now in a large no of areas. in fact, it is still insisting on taking in hordes of foreign workers. and that housing is affordable. and that we have a first world transport system.

i guess the last is true. we are having the same sort of problems as train systems in other first world cities. the difference is, their systems are a damned sight older than ours.

the horror of it is we'll just have to wait for everything to collapse, from the property bubble to social cohesion, before any thing will be done to really change things.

the govt seems to be in the same state of fear that it keeps inflicting on sporeans to claim that what it is doing is right. it is simply in near total denial.

I remember around 1998 or about 14 years ago I visited a factory in Jakarta producing consumer goods. They have closed to 600 workers using 1920 machinery with labour working on machines that require human doing the pedaling instead of an electric motor.

Compared to the MNC company that I worked for at that time. We just use two machine and 4 workers and we can produce the same volume and a better product!

"The PAP on the other hand .... they seem to think that they have all the time in the world to get this fixed .....favoring approaches that are so gradual they hardly moves us away from the status quo."Lucky Tan

So that's no good lah.

But isn't the opposition also hardly moves away from the status quo? Also no good what.

So no good + no good = good, right? For PAP that is.

In other words, in this case, 2 wrongs make a right for PAP. Lucky, do you agree?

It is amazing that singaporean elected an MP who is more concern about PR unable to pay the high cost of medical bill than Singaporean. Than we have two MPs who are worried about businessman not making big profit then suggested plan to increase the basic pay for lowly skill Singapore workers so these workers have better living standard.WHAT HAPPEN PEOPLE?!!!

Our leaders no longer have the balls for any radical action unless it's been blessed by the Harvard Business School and endorsed by a Committee of Inquiry of 100 expert witness.

When we elect managers and administrators this is what you get.Problems are never solved.They are just managed and administered until they are passed over to the next manager-administrator.i.e. the much vaunted 4G leadership.

Besides opening up our hands and legs and wallets to this next 4G leadership; I'd suggest we also better open up our eyes and minds to alternative leaders and political parties.

The Internet is finally having an impact on public policies. It would have been impossible for Professor Lim to speak out in the MSM days. Now even the NTUC Lim has to defend his position. It shows that PAP no longer has complete control of agenda. (LHL now has to spend time defending his policies and responding to the needs of the electorate.)

SME claim that higher wages will put them out of business. Perhaps so.

But as you have mentioned, if there is demand, the business will continue. They could also move operations off shore ( since they are adamant in not paying more for workers, they rather pay for new premises elsewhere!)

LSS also mentioned that the 1985 recession was brought about by high wage increases ( then ).I find that really confusing.

Is not Singapore's economy tied to the fortunes of USA & the world at large? How did wages cause the recession then?

Lim Ching Yah's proposal causes a shock and rightly so.. slow repair will not work here.. ah seng & rahmat's life span is not as blessed as the great, grand maestro with botox injections.

We have a leader who only apologised at the last minute to save his face, so do you expect them to solve problems before it is too late? It's scary when leaders ignore the warnings of academics. It's about time the driver gets slapped real hard.

And subsidising companies using workfare is paid out by taxpayers actually. So who benefits in the end? Businesses which in turn supports current political climate to ensure it stays favourable to them is common.

Using the wheel ferris example. With MW, the Biz Owner (BO) will likely cut from 4 workers to 2 workers. He will choose the stronger/harder working (=higher productivity) ones who can rotate the wheel. Question is -

1) what will happen to the other 2 weaker workers? unemployed?2) what happens if the 2 stronger retained workers are the foreign talent instead of locales?

//Using the ferris wheel example, if no action are taken, all 4 workers will be foreign "talent". What happens to the locales then?//

The point is to replace the ferris wheel into machine-operated one so you only need 1 person to press the green/red button. Thus eliminating all 3 cheap labors (presumably the foreign workers). But whether the one who operates the button is a locale/fw remains to be seen who wants to do this mind-numbing work.

This is the first time a PAP old guard has been rebutted openly in mainstream media, definitely a sign of the split within the party. The old man wouldn't allow young fledglings like Lim Yi Shyan to talk back his comrade this way.

The old PAP is indeed gone, what is borne out of it today is a selfserving demonic regime. Albert wimbenus and the retired architects are turning in their death bed!

Employers also have the choice of whether to employ people or machines. For example, an employer can hire a receptionist or invest in an automated answering system. The next time you are screaming obscenities into the phone as you try to have a conversation with a computer, you know what to blame for your frustration.

Another example. Suppose A is making $12/hr as a production manager. With new minimal wage, the janitor B suddenly is making $10/hr. A is going to wonder why with his skills/talent he is only making $2 more than A. As a result, Boss has to increase the salaries across the board upwards the chain. More cost incurred or HC has to be cut. Not a problem to big company who can take the cost, but to SME, this will pose challenge. Then how?

The pap multi$million nincompoops have again shown that they are incapable of change. Their minds are stuck in the channel LKY has implanted into their brains.The only way forward for Singapore is one without the pap. I am more and more convince of that.

Actually PAP govt is stupid to dismiss LCY's proposal. LCY's proposal takes just 3 years, and if it works it will be just nice before the next election, and PAP will benefit politically from taking this risk. If PAP balks and continues with its present approach it will just mean losing more votes in the next election.

The way I see it there is nothing to lose for the PAP in taking up LCY's idea.

Such a move (to universally raise wages ahead of productivity) was attempted before, in the early 1980s (when the NWC was under this professor) It screwed us up seriously when the global recession hit and we lost our labour competitiveness. In the end, we had to impose a wage freeze (among other things) to get the Singapore economy to grow again.

So the resistance is not based on a "theory" from the PAP. You guys think the PAP is chicken simply because you don't remember your history. Unlike Hong Kong, we don't have a hinterland. So there are risks which are easier for them to take.

I think that recession hit everyone not just Singapore. The CPF was adjusted downwards to restore competitiveness....but was never fully restored(?). We cannot keep competing by keeping wages down.

Today there are 400,000 workers earning below $1500 in Singapore - a city on the top 10 list of most expensive cities. Tackling unemployment is not the only economic goal...creating employment without a minimum wage is a meaningless almost trivial endeavor yet our politicians celebrate our low unemployment as a major achievement.

"if productivity does not lead to a corresponding increase, competitiveness would be lost"

and where is the productivity when prices of hdb & private properties keep on going up plus a lot of things. how to reconcile the fact that prices of certain items like basic housing (static shelter) can keep on going up while the wages of human labour (being non static) which are supposed to do the productive work can be suppressed or whose value-addition can be transferred (to employers via profit or through taxation via employment or consumption).

For the past decades, PAP has been following the USA’s policy of paying the top earners exorbitant salary that we are becoming a country where top 1% remains wealthy beyond imagination, and the remainder, in one way or another, are working in jobs that help make the lives of the elites more comfortable. The top 1% now captured most of the income gains and the remaining 99% were either trading water or seeing failing incomes.

PAP will not solve the huge income inequality problem because besides freeze or cut PAP own income, the income of their colleagues, associates, relatives, friends will also affected.

Frankly, how many of those who voted for PAP really know their high pay in $$$$. In fact, some of thier supporters I happened to speak to were surprised when they learned it.

And yes, they won 93% of the seats with 60% of the votes in a winner-takes-all (50% to win) contests. In fact, it is theoretically possible to win all the seats (100%) with 50.09% of the votes - or % if all the seats are walkovers (no opposition member to contest).

"The business man is not going to invest in a motor just because Lim Swee Say tells him to do so."Lucky Tan

Of course not lah, because Lim Swee Say only tells what. As a politician, Lim Swee Say must also tell the public the right things in the right way lah. To be politically correct, that is. Or else how to win the 60%?

But is Lim Swee Say's pay and bonuses peg to productivity?

Just like if Lucky Tan has made a lot of money from high property prices, you don't expect him to tell this in his blog, right?

And yes, they won 93% of the seats with 60% of the votes in a winner-takes-all (50% to win) contests. In fact, it is theoretically possible to win all the seats (100%) with 50.09% of the votes - or ZERO % if all the seats are walkovers (no opposition member to contest).

I need to take the Bukit Panjang LRT when I get to work each morning and the crowds at the platform is too many that we had to stand still for 2 minutes so that the incoming crowd could dissipate so that we can pass through the narrow walkway which could in only 3 people at a stretch. I no longer think this government is effective and quite frankly, I no longer this it's funny to have to live like this. We are short-changed to the core by this government. We need a better one. We have an underperforming government. How often did you have to queue to buy your groceries because there are so many foreigners, pinoys, etc. in the queue? The queue at Bukit Panjang NTUC stretches to outside the store! I had to reschedule doing my groceries!

What is going on in Singapore?!! We are now the world's second most densely populated country in the world! We are now number one for all the wrong reasons.

Why do we need a government who tells us that our flats is home onwership but when your pipes are leaking in your HDB flat, PUB doesn't fix it?

Since HDB belongs to the government and it doesn't belong to me but the government is deluding the people to think it belongs to them, is that right?

Since none of us own our flats, why the hell does the government not pay for the leaking pipes; since they are the owner of our flats?

No! They're too cunning. They tell you your hdb belongs to you so that you can pay for the leaking yourself and they cut their cost.

Only 3 words: Fucking Daft SIngaporeans and yes, LKY was right once again.

Despite low pay, there are few beggars out there because a simple life with basic food cost very little to keep one alive. The only high cost is housing and that too even many lowly paid owned - 90% homeownership comprising lowly paid workers.

But humans desire luxuries. Better healthcare,better clothes,better housing,better transport,better food,better entertainment and leisures and this and that and if possible, nothing but the the best.

And oh yes, financial freedom or slaves to pecking orders - why do you suppose they buy toto?

Yes, they won't die because of "low pay" but they are unhappy because daily, they are humiliated by hypocrites the likes of...lucky.

You are in for a 5 year term. You try to stay in parliament for 10 years and maintain the status quo and take in your million dollar salaries.

With such high pay, what incentive is there for them to want to change the status quo?

In fact, they want the status quo to remain. They don't care nor value your concerns and difficulties.

So, these problems are set to remain for another 10 years.

This ain't going to change until singaporeans are fed-up.

I doubt singaporeans have the moral courage to do what they know is right for the people of singapore. They themselves are running the rat race that the government has created for them to have a so-called "meaningful' life.

You want change? I have to agree with CHee Soo Juan on this bit. What that chap is trying to do is to get singaporeans to value their right to free speech first; then all the constructive changes for a better and more humane Singapore can take place.

It seems to me singapore is not daft.

We have no shortage of critical thinkers in this island.

The problem is all the critical thinkers are placed in jail in this country.

1. Take the whatever wage offer, and have a means of living. 2. Refuse the whatever wage offer, and starve. 3. Attempt to negotiate for a higher wage, which fails because there is another unemployed or cheap FW willing to take whatever wage, because is better than nothing.

The employers options for any single job applicant are:

1. Hire this applicant at whatever wage. 2. Hire this applicant at a higher wage. 3. Refuse to hire this employee at a higher wage, in favor of another cheap FW to whom the whatever wage is better than nothing.

The employer wins this game because he has two best options (#1 and 3) compared to the applicant's one (#1).

The fact that a fortuitous feature of the job market can allow employers to exploit entry-level workers for sub-poverty wages is one of the rationales behind the minimum wage.

"I strongly agree that Singaporeans are daft.Daft because they cannot form a strong and better alternative to PAP."ANON: 15/4/12 13:09

This is the reason for Singapore's extensive scholarship system.To identify the best & brightest of each education cohort.To make them become "part of the system" with a scholarship, career fast tracking and bond.

In other words, to control Singapore's best & brightest when they are young.Before they have a chance to develop their own conscience, civic duty and sense of what is right & wrong.

This is the way of cutting off talent supply to the Opposition Parties.With taxpayers money.Singapore's talent pool is under-utilized, badly mis-allocated and overpaid.Bad for our economy and overall development.

//even if everyone gets to live in condos, some jokers will still want to topple the govt!//

Why call it topple ? Call it as being part of an inclusive society and constructive engagement. "Inclusive" seems the buzzword nowadays. There is a media frenzy to get this buzzword planted into your head so that you feel so goooooooooooooooood to be incluuuuuuuuuded and engaggggggggggggggggggggged.

Let's admit that we sinkies are all shits lah! And that is from the top down to the bottom.Some talked a lot, no show faces. Some said cannot rock the boat or all will die. Some will say noise makers all 'khe khiang'(act smart), others say 'bopian'(what can one do?)The top talents have no qualm exploiting, manipulating and bully the weak. Enslaving the masses for themselves to enjoy wealth and vice. They also have no qualm and sin in feeding their conscience to the dog.How can a society inhabited by the kind of people above be good?

The Prof has raised the heckles of the PAP top dogs because he has rocked one of their entrenched beliefs: PRO-BUSINESS. Bill Clinton said in 1992: It’s the economy, stupid (or daft Singkies). And they are probably snarling, barking angry when he added freezing their salaries - how dare he!

Who fights for the lower paid workers when the PAP controlled trade union teams up with employers? Only in uniquely Singapore do we find a leader of a labour union fighting against a wage increase and a minimum wage for the low-income earners, citing spurious excuses like productivity, plant relocations, competitiveness, higher unemployment, dangerous, risky, etc...

I am no economics expert. But improving productivity eg through higher automation, job redefining, multi-tasking, training, etc..., means you need less workers (higher unemployment, right?) – and this has not always translated into better pay for the low-income earners – it means exploitation and higher profits for the businesses. Incidentally paying better can lead to better productivity, not vice versa.

Plant relocations are good, it means moving out non-viable enterprises. Importing cheap foreign workers is a disgrace, it’s more exploitation again…and in the process tearing apart our social fabric and despoiling our landscape.

Wow, Sinkies are talking as though the Prof has never contributed to the situation today. Was he not a pro-business person when he was heading the NWC?Did he not see the fermentation of the situation over the Last Decade?

The Intelligent Singaporeans, TOC, Temasek Review, My Singapore News, Diary Of A Singaporean Mind, Singapore Notes and many Blogsites were filled with concern, worry, caution and constructive suggestion daily since 2005. The Good Prof was silent all those years! Why?

And there was a top senior Civil Servant in the Name of Ngiam Tong Dow who came infrequently to give his take. The Prof was not aware? He got nothing to say about Ngiams' many published views? Or was he of the view that those warnings from others were noises?